gmr infrastructure-equity research report 2011 by icra

1

ICRA ONLINE EQUITY RESEARCH

GMR INFRASTRUCTURE LIMITED April 18, 2011 Industry: Infrastructure Initiating Coverage

ICRA Online Grading Matrix Valuation Assessment

Fund

amen

tal

Ass

essm

ent

A B C D E 5 4 3 3+ C 2 1

Fundamental Grading of 3+/5 indicates

Good fundamentals Valuation Grading of C indicates fairly

valued on a relative basis Key Stock Statistics Current Market Price* (Rs.) 40.45 Shares Outstanding (Crore) 389.24 Market Cap (Rs. Crore) 15744.9 52-Week High (Rs.) 68.7 52-Week Low (Rs.) 29.0 Free Float (%) 29.4% Beta 1.4 EV/EBITDA FY11 Est (x) 25.8 Bloomberg Stock Code GMRI IN *As on April 18, 2011 Source: Capitaline; NSE GMR Infra Shareholding Pattern (March 31, 2011)

GMR Infras Share Price Movement (24 months)

Promoters, 71.2%

FIs/Banks, 8.0%

FIIs, 12.6%

Others, 8.4%

Fundamental and Valuation Grades: ICRA Online has assigned the Fundamental Grade 3+ and the Valuation Grade C to GMR Infrastructure Limited (GMR Infra). The Fundamental Grade 3+ assigned to GMR Infra implies that the company has Good fundamentals relative to other listed securities in India. A + sign appended to the Fundamental Grade indicates its relative position within the grading category. The Valuation Grade C implies that the company is fairly valued on a relative basis (as on the date of the grading assigned). A leading player in the Indian infrastructure sector, GMR Infra has a diversified presence across energy, airports, roads and SEZs. The Hold Co for the Groups diverse interests, GMR Infras asset ownership extends beyond India to countries like Indonesia, Turkey, Maldives, Canada, Singapore etc. Operational assets of the Group include 3 power projects (cumulatively at 823 MW), 3 airports (Delhi, Hyderabad, Istanbul) and 6 road projects (3 annuity, 3 toll) the thrust of the Groups expansion plans over the medium term are however in the energy segment with approx 8448 MW under various stages of implementation. GMR Group also had a sizeable ownership interest in InterGen N.V., a Netherlands-based power producer with asset ownership extending across 5 countries the Group has recently announced the sale of its 50% stake in InterGen to the China-based Huaneng Group to consolidate its energies on the Indian energy segment. Grading Positives: Proven execution track record, diversified presence across various infrastructure segments, strong portfolio of planned projects resulting in relatively stable long-term cash flows once successfully implemented and easing of immediate funding risks. Given its execution capabilities, GMR Infra has the potential to emerge as a front-runner in the Indian infrastructure domain particularly given the sizeable opportunities. The Groups demonstrated fund raising capabilities should also support project execution. Potential upsides include (1) positive regulatory impact for DIAL (2) firming up of merchant power prices (3) unlocking of value in SPVs once they reach maturity. Grading Sensitivities: Key sensitivities include: (1) Time and cost overruns in project implementation (2) Lower than anticipated build-up of revenues on account of regulatory fallout in airports, weakening of merchant power prices and fuel supply irregularities, traffic ramp up at roads/airports being below expectations (3) Possible further equity dilution within GMR Infra or alternatively, greater than envisaged dependence on debt funding (4) delays in land monetisation at DIAL and GHIAL

Key Financials (Consolidated) 2009-10A 2010-11E 2011-12E 2012-13E Operating Income (Rs. Crore) 4566.5 5762.9 8109.3 13631.1 EBITDA Margin (%) 29.9 25.0 26.8 34.3 PAT Margin (%) 4.9 (4.9) (0.5) 4.5 EPS (Rs.) 0.43 (0.4) 0.1 0.7 Trailing P/E (x) 90.27 P/BV (x) 2.3 1.8 1.6 1.4 RoE (%) 2.0 0.2 -0.3 0.7 RoCE (%) 8.2 4.1 4.8 9.2 EV/EBITDA (x) 25.5 25.8 19.7 9.3 Source: Company, ICRA Onlines estimates

ICRA Equity Research Service GMR Infrastructure Limited Initiating Coverage

2

GMR Group Profile: Beginning with a 200 MW LSHS based power plant at Basin Bridge, Chennai, in 1999, GMR Infra has progressively grown into a conglomerate having interests in airports, roads, SEZs, besides energy, across India/overseas countries. The flagship, and the only listed entity, GMR Infra is a Hold Co for the GMR Groups diverse interests in energy, airports, roads, SEZs. The Group continues to largely operate as a pure-play developer and owner of infrastructure assets (as opposed to the EPC plus asset ownership model). The energy, airports, highways and urban infrastructure (largely SEZs) verticals have a range of operational projects and several in the implementation stage. While the operational projects of the Group are spread across the energy (3 power projects with a cumulative capacity of 823 MW), airports (3 airports one each at Delhi, Hyderabad and Istanbul, Turkey) and roads segments (3 annuity projects and 3 toll projects with a cumulative length of 421 kms), GMR Infras planned/ongoing projects are heavily skewed in favour of the energy segment with 11 power projects under various stages of implementation. GMR Infra operates as a pure Hold Co for the Group, with limited stand-alone operations (GMR Infra has recently decided to engage in EPC activities through an EPC division which is expected to progressively contribute to its standalone revenues) all operational/planned projects are held under various subsidiaries. While all power projects are organized under GMR Energy Limited (98% held by GMR Infra), which has historically served as the Hold Co for the Groups energy vertical, the Group has recently formed separate Hold Cos for the airports and highways segments GMR Infras holding in various airports/roads is in the process of being transferred to these Hold Cos. Following its ~ Rs. 800 crore IPO in August 2006, GMR Infra has completed three rounds of equity raising through QIP/PE: approx Rs. 4000 crore in December 2007 and Rs. 3665 crore in FY111. GMR Infras growing international presence is largely within the airports and energy segments (Airports: one operational airport at Istanbul, Turkey, recent acquisition of 77% stake in Male airport; Energy: InterGen, acquisition of interests in coal mines in Indonesia and South Africa and in one gas-based power plant at Singapore). The largest overseas asset was the USD 1.135 billion acquisition of 50% stake in InterGen2 GMR Group has recently announced the sale of this 50% stake to the China-based Huaneng Group at USD 1.232 billion resulting in a loss of approx USD 70 million. Figure 1: GMR Infras presence overseas 2010 Acquired 77% stake in Male Airport/Sale of 50% stake in InterGen 2009 Acquisition of coal mines in Indonesia/Acquisition of stake in Singapore-based Island Power (gas-

based)/Commissioning of Istanbul Airport 2008 Acquired 50% stake in InterGen 2007 Awarded the contract for the development of the Istanbul Sabiha Gokcen Airport (40% stake)/Acquisition of

stake in Homeland Energy Source: GMR Infra For the Groups organization structure See Annexure IV.

1 Rs. 1400 crore QIP issue in April 2010, Rs.1365 crore through PE investments in GMR Energy Limited in June 2010 and Rs. 900 crore through PE investments in the Airports Hold Co in March 2011. 2 The acquisition of 50% stake was routed through GMR Holdings Private Limited; GMR Infra had a nominal shareholding of 5%, the company had also invested in CCDs (Compulsorily Convertible Debentures) which were convertible into 50% equity interest in InterGen by February 2012.

GMR Infra: Key Facts and Figures

Incorporation: 1996 Listed in: 2006 Other Listed Group entities: None Headquartered: Bangalore, Karnataka Hold Co/Operational Company: Hold Co Business Segments: Energy, Airports, Roads, SEZ [operated through various subsidiaries] Promoter: Mr. G.M. Rao Operational Assets: 3 power plants [823 MW]; 3 airports [Delhi, Hyderabad, Istanbul], 6 road projects [ 421 Kms] Planned projects: 11 power plants, 1 airport, 3 road projects


3

Figure 2: Scope of Activities across business verticals

Energy Airports Roads Urban Infrastructure GMR Energy is the Hold Co, and also owns 1 of the 3 operational power plants 3 Operational thermal Power plants aggregating to 823 MW [588 MW regulated and 235 MW merchant] 11 Planned projects with a cumulative capacity of 8448 MW 4740 MW coal based plants, 1568 MW gas-based plants and 2140 MW hydro-power plants Coal mining in Indonesia estimated mineable reserves of 104 MT3 56% stake in Canada-based Homeland Energy est. mineable reserves of approx 247 MT in South Africa Revenue Share: FY 10: Largest Segmental revenues: Rs. 2040 crore; 45% of Consolidated Rev Segmental PBIT: FY 10: Rs. 260 crore; 28% of Consolidated PBIT Size of Ongoing/Planned Capex: Approx Rs. 48000 crore Revenue Share: FY 13E4: Rs. 6212 crore; 46% of Consolidated Revenues High Growth phase - Substantial ramp-up in capacity from 823 MW to 8448 MW. Capital intensive of the total planned Group capex, the majority is attributable to the Energy segment. Operating assets are stable.

Hold Co has been recently formed. At present, interests in various airports are directly held by GMR Infra 3 Operational airports 1 each at Delhi, Hyderabad and Istanbul, Turkey Ongoing development at Male airport. Commercial land development at the Hyderabad and Delhi airports ~ 1250 acres in aggregate Aggregate annual passenger throughput across the 3 operational airports is at approx 39 million pax Revenue Share: FY 10: Second Largest segment: Rs. 1489 crore; 33% of Consolidated Revenues Segmental PBIT: FY 10: Rs. 240 crore; 26% of Consolidated PBIT Size of Ongoing/Planned Capex: Approx Rs. 2300 crore Revenue Share: FY 13E: Rs. 4786 crore; 35% of Consolidated Revenues Move from Growth to Consolidation Phase. Marquee asset, DIAL 5 is fully operational. Ongoing capex at Male airport, but limited in comparison with the investments already made in this segment so far. Commercial land development at DIAL and GHIAL6, set to take-off

Hold Co has been recently formed. At present, interests in various roads are directly held by GMR Infra 6 Completed road projects aggregating to 421 Kms [3 toll roads of 166 Kms and 3 annuity roads of 255 kms] 3 ongoing projects 2 toll roads and 1 annuity project [aggregating to 309 kms] Revenue Share: FY 10: Rs. 346 crore; 8% of Consolidated Revenues Segmental PBIT: FY 10: Rs. 161 crore; 18% of Consolidated PBIT Size of Ongoing/Planned Capex: Approx Rs. 5000 crore Revenue Share: FY 13E: Rs. 835 crore; 6% of Consolidated Revenues Operating assets have stabilised - Growth phase continues

No Hold Co in place No Operational/Completed SEZs SEZs planned at Krishnagiri and Kakinada aggregating to approx 11600 acres. Revenue Share: FY 10: Nil Revenues Segmental PBIT: FY 10: NA Size of Ongoing/Planned Capex: No concrete plans in place Revenue Share: FY 13E: Nil contribution expected Move into SEZs to depend on favourable regulatory climate

Source: GMR Infra; ICRA Online

3 MT = Million Tonnes 4 E = Expected 5 DIAL = Delhi International Airport Limited 6 GHIAL = GMR Hyderabad International Airport Limited


4

Investment Summary: Diversified presence Investment plans underscore strong growth potential: GMR Infras investments span various growing and uncorrelated infrastructure segments (Energy, Airports, Roads, Commercial land development and SEZs) the asset mix, scale and diversity within each of these segments is unique among infrastructure developers. Geographical diversity is supported by the presence of projects across India and GMRs growing ambitions outside India. Along with diversifying its current base of operations, GMR Infra has also built up a substantial pipeline of projects for future investments, across diverse segments - the scale of these planned projects is considerable when compared to the past level of investments (Rs. 57000 crore of planned projects as compared to Rs. 25000 crore for the existing asset base). We believe that this planned project portfolio is well-aligned to GMRs current operational asset base and could, once completed, result in considerable value addition for investors. Proven execution capabilities, albeit on a lower scale: GMR Infras 3 completed power projects, 6 completed road projects and 3 operational airports all completed without significant time overruns are indicative of the Groups project execution/management capabilities. GMR Infra operates largely as an infrastructure developer with the actual execution being contracted to various parties. While GMR Infra plans to progressively increase the involvement of its in-house EPC division in project execution we expect the development model to continue to be biased towards third-party contracting. Although the past track record of GMR and the third-party contracting model are mitigants, GMR Infra is exposed to execution risks given the inherent risks of projects during the construction phase and the scale and complexity of the proposed capex relative to that of the operational asset base. Airports investment phase over focus shifts to earnings; value largely driven by real estate operations: Completion of T3 in DIAL in July 2010, marks the end of a lumpy capex phase for GMR Infra 3 airports (Delhi, Hyderabad and Istanbul) are now operational while capex is ongoing at Male Airport, Maldives, albeit on a much smaller scale than the cumulative investments in airports so far. We believe airports may be at an inflection point with the surge in passenger/cargo traffic and the buoyant economy driving revenue growth for DIAL and GHIAL; Istanbul and Male airports are also reporting similar trends in traffic. Regulatory concerns remain given the impending approval of DIALs project cost and the expected decision of the AERA7 on DIALs aeronautical tariff mechanism. For GHIAL, the application of a single till mechanism has been stipulated by the AERA; we expect this to be beneficial in the short term while limiting the upside potential in the long term. Modeling on the continuation of the hybrid till mechanism for DIAL and the application of a single till mechanism for GHIAL, we expect the airports segment (excluding real estate) to generate free cash flows by FY14. Net profits are only expected from FY13 onwards given the large debt-funded capex incurred till date and the consequently high capital servicing charges. Earnings from core airport operations would however be overshadowed by potential upside from real estate activity at DIAL/GHIAL a high revenue share at DIAL and the single till mechanism at GHIAL serve to restrict the profitability from core operations at these airports real estate operations thus could be potentially far more value accretive than the core airport operations. Energy medium term to see substantial ramp-up in capacity: GMR Infras current operational asset base is skewed towards airports with DIAL being the single largest asset of the Group. Future capex plans are however centred on the energy segment where the capacity is proposed to be enhanced to 8448 MW from 823 MW at present of this approx 4138 MW is currently under implementation. GMR Infra is also investing in operationalising its coal mines in Indonesia and South Africa, which would help secure coal supply to some part of its planned capacity. The thrust on the energy segment going forward should correct the current bias towards the airports segment. Since a large part of the power sold would be backed by PPAs, cash flows from the energy segment are expected

7 AERA = Airport Economic Regulatory Authority


5

to be relatively stable when compared to the airports segment the thrust of the capex plans on the energy segment thus augurs well for long term cash flows. This segment is however exposed to the counter party credit risks of the State owned distribution utilities, given their rapidly deteriorating finances in most cases. Revenue build-up expected; cash flows to follow next 2-3 years would be the build-up period: We expect revenues to build up over FY11-15 (CAGR of 35%) with the commissioning of 4138 MW of power capacity and increased revenues from the airports and roads segments. GMR Infras operational asset base is currently low and comprises mostly of recently commissioned projects as such, we expect earnings to remain subdued over FY11-13 and stabilise at higher levels thereafter. The immediate impact on earnings would be negative with the commissioning of T3 in DIAL in the current fiscal, resulting in the full impact of interest costs and depreciation over FY11-12. We expect FCF to remain in negative territory on account of the substantial capex plans till FY14. We thus see limited upside to the financials over the near-term although the outlook for the long term is positive. Recent fund-raising and deleveraging to lower near-term stretch in Balance sheet: GMR Infra raised approx Rs. 1400 crore in April 2010 through a QIP issue; PE investors also infused approx Rs.2265 crore into GMR Energy/Airports Hold Co in FY11. Since these funds were expected to be invested in various planned projects only over a period of time, GMR Infra has used part of these funds to retire debt in the interim. While the reduced debt levels and increase in equity base have resulted in an improvement in the level of leveraging, we expect this improvement to be transient; re-leveraging the balance sheet is imminent given the substantial Group capex plans. We expect Debt/Equity to peak at 2.2 times by FY12 and moderate thereafter with the progressive commissioning of assets under development. No immediate funding concerns longer term funding pressures expected to be addressed in part through the listing of the energy vertical: We expect GMRs current holding of cash and liquid investments to comfortably meet investment requirements till FY 12 for the current portfolio of projects i.e. power projects aggregating to 4138 MW, Male airport, 3 ongoing road projects and Indonesian coal mines. Value unlocking is proposed in the energy segment through an IPO of GMR Energy (Hold Co of the Energy vertical) by FY13. Some PE investments have recently taken place in the Airports Hold Co, which could also be a potential candidate for an IPO at a later stage. We expect GMR Energy to raise approx Rs. 2500 crore through an IPO these funds together with cash accruals from the enhanced operational asset base, are expected to meet equity commitments for GMR Infras planned projects. In the event of any delay in the IPO beyond FY13 and/or any increase in equity commitments through new projects, however, further equity dilution at GMR Infra is a possibility. Divestment of value decretive investment in InterGen is a positive: We view GMR Infras exit from InterGen to be a positive given the lack of synergies between the two businesses and the increased management focus that is now possible on the Indian energy segment. GMR Infra had acquired 50% stake in InterGen (routed through a Promoter Company) in a largely debt-funded acquisition of USD 1.135 billion. Although InterGen has an energy portfolio of 5826 MW over 11 power plants across several countries, its profitability had been strained due in part to the high level of leveraging. Against GMR Infras investment of USD 1.34 billion, its returns from InterGen over the holding period have been lower than the costs of servicing the acquisition-related debt. Further, with IFRS convergence, GMR Infras financials would have been impacted by the debt raised to fund the acquisition. As such, although the divestment of stake in InterGen was made at a loss, we expect the exit at a marginal book loss to be beneficial in the long run.


6

Valuation: GMR Infra is currently trading at a significant premium to its peers on FY13 EPS the stock is also trading at a premium over peers on the P/BV and EV/EBITDA multiples. Given the high capital related charges due to recent capitalisation of airport assets and large ongoing capex in the energy and roads segments, earnings are expected to remain depressed in the near term. Further a significant portion of the value accretion to shareholders is expected from the monetisation of the real estate assets at DIAL and GHIAL, a large portion of which is not captured in the earnings of GMR due to the upfront lease deposit model being followed. In addition to these, we also expect the power business to be a major earnings driver in the near to medium term post the completion of various ongoing projects. Also, the asset mix, scale and diversity of GMRs assets is unique amongst other infrastructure developers in the country. These factors appear to be the reason for higher valuation multiples of GMR Infra in relation to its peers, and we believe that this is justified and, therefore, assign a valuation grade C, indicating that the company is fairly valued on a relative basis.


7

Energy Segment: Into High Growth Phase: GMR Energy operates as the Hold Co for the energy segment of GMR Infra and also operates one of the 3 operational power plants of the Group the 235 MW KG basin gas-based merchant power plant at Kakinada. Apart from the operational power plants (aggregating to 823 MW), GMR Infras energy portfolio also comprises of ongoing/planned power projects of 8448 MW and the development of coal mines in Indonesia/South Africa. Although GMR Infra made its beginnings in the infrastructure segment through the power sector, the focus later shifted to the airports segment. With its substantial capex plans in the energy segment, GMR has come full circle GMR Infra currently has one of the largest energy portfolios under development. GMRs large growth plans in the energy segment have recently attracted PE investors USD 300 million was infused jointly by Temasek and IDFC in April-June 2010. Operational 823 MW relatively more stable now: Figure 3: Details of Operational Power Plants GMR Energy GMR Power Vemagiri Power CoD 20018 1999 20069 Capacity 235 MW 200 MW 388 MW Location Kakinada, Andhra

Pradesh Chennai, Tamil Nadu Vemagiri, Andhra Pradesh

Fuel Type KG Basin Gas LSHS KG Basin Gas Regulated/Merchant 100% Merchant 100% Regulated. 15-year

PPA with TNEB expiring in February 2014

100% Regulated for 370 MW. 23-year PPA expiring in 2029

PLF (%) - FY10 28% 68% 86% Revenues (Rs. Crore) - FY10 236.4 870.3 766.5 PAT (Rs. Crore) - FY10 13.8 127.7 169.1 PAT/Revenues (%) - FY10 5.4% 14.7% 22.1% Source: GMR Infra With the conversion of GMR Energys barge-mounted plant to gas-based operations, its relocation to Kakinada, KG basin gas allocation and the commencement of supply of KG basin gas to Vemagiri Power, the gas-based operational power plants are now on a firmer footing. We view GMRs current mix between merchant and regulated (cost plus) PPAs to be favourable a balanced mix between steady and volatile revenues/profits. However the energy segment has been under-performing in FY11 YTD on account of delays in operationalising the gas-based plant at Kakinada. Revenues from GMR Power and Vemagiri Power are more stable given the availability-based tariff mechanism GMR Powers PPA is however due to expire in 2014 with limited possibility of extension given the high cost of LSHS based generation. Aiming for fuel security through coal mines: GMRs interest in coal mines in Indonesia and South Africa, gives it control over close to 351 MT of coal. Exploration at the Indonesian mine is in progress and production is expected to commence in FY12. Homeland Energy, in which GMR Infra has 56% stake has commenced production at a 37 MT coal mine 8 This plant was earlier being operated on naphtha. Following the expiry of its PPA with Karnataka State, GMR Energy has converted the plant into gas-based mode this has resulted in a significant reduction in the plants cost of generation (COG). Combined cycle operations at the plant commenced in October 2010. 9 This plant was commissioned in 2006 but was able to operate on a continuous basis only from April 2009, after KG basin gas was made available. Till then, the plant had been operating only intermittently based on the availability of gas. Vemagiri Power was being supported by the parent, GMR Energy in the interim.

GMR Energy Segment: Snapshot

Hold Co: GMR Energy Limited Operational Assets: 235 MW KG basin gas-based plant at Kakinada; 200 MW LSHS based plant at Chennai; 388 MW KG basin gas-based plant at Vemagiri Regulated/Merchant Capacity: 235 MW Merchant; 588 MW Regulated Planned Capacity: 8448 MW 4740 MW coal based; 1568 MW gas based and 2140 MW hydro power Mining: 100% stake in Indonesian coal mines - estimated mineable reserves of 104 MT; 56% stake in South African mines - estimated mineable reserves of 247 MT Contribution to FY 10 Revenues: 45% Segmental PBIT FY10: Rs. 260 crore 28% of total


8

(October 2009), while exploration is still to commence at the 210 MT mine. Although meaningful production will only commence with a lag, the access to imported coal (which would support >5000 MW of capacity) is invaluable considering the precarious domestic coal supply scenario. Commercial exploitation of these resources would however require substantial additional investments over current levels. Ten-fold expansion in capacity proposed but visibility limited to 4138 MW: Figure 4: Details of planned power plants Capacity

in MW Location Fuel Type Expected Cost

in Rs. Crore Expected

CoD Financial Closure

PPA

GMR Kamalanga

1400 Orissa Domestic coal

6040.0 FY14 Yes - 1050 MW

263 MW to Govt of Orissa cost plus; 300 MW tied up at a levellised tariff of Rs. 2.41/Unit

EMCO Energy 600 Maharashtra Domestic coal

3480.0 FY13 Yes 200 MW tied up at a levellised tariff of Rs. 2.64/Unit

GMR Rajahmundry

768 Andhra Pradesh

KG basin Gas

3300.0 FY12 Yes No PPAs in place

GMR Chhattisgarh

1370 Chhattisgarh Domestic coal

8812.0 FY15 Yes10 No PPAs in place

SJK Powergen

1370 Madhya Pradesh

Domestic coal

8812.0 FY16 No None

Bajoli Holi Hydropower

180 Himachal Pradesh

Hydro 1650.0 FY17 No None

Talong Hydropower

160 Arunachal Pradesh

Hydro 1837.0 FY17 No None

Alaknanda Hydropower

300 Uttaranchal Hydro 2190.0 FY16 No None

Upper Karnali Hydropower

900 Nepal Hydro 4740.0 FY16 No None

Upper Marsyangdi Hydropower

600 Nepal Hydro 3167.0 FY17 No None

Island Power 800 Singapore Gas Estimated at Rs. 4000 Crore i.e. Rs. 5 Cr/MW

NA In process None

Total 8448 MW ~ 48000 Cr Source: GMR Infra; ICRA Online; NA = Not Available Commissioning of its 8448 MW planned capacity would propel GMR Infra into one of the largest power producers in terms of installed capacity. A large part of this capacity is in initial stages of implementation and we expect only 2418 MW of incremental capacity to be operational by FY13: GMR Kamalanga (1050 MW), EMCO Energy (600 MW) and GMR Rajahmundry (768 MW) a total of 4138 MW of capacity is expected to be commissioned by FY15. Of these, GMR Kamalanga and EMCO Energy are in relatively advanced stages of implementation with fuel supplies tied up and PPAs in place for a part of the capacity. COG for the 3 planned domestic coal based plants is expected to be competitive within the range of 2.00-2.30/Unit except EMCO Energy where the COG would be higher, while that for the gas-based plant is estimated at Rs. 2.96/Unit. We expect GMR Infra to tie up 85% of the capacities through long term PPAs, leaving the balance open for merchant sales. Once operational, the combined capacity of 4961 (4138+823) MW is expected to generate steady free cash flows of > Rs. 1500 crore per year. Fuel supply uncertainties could be a spoiler: For the two existing gas-based power plants of GMR Energy and Vemagiri Power, continued gas supply is subject to changes in line with the gas allocation policy the current FSAs11 are for a limited term till

10 Subject to coal linkage and environmental clearance 11 FSA = Fuel Supply Agreement


9

Figure 6: InterGen Details Date of Acquisition: October 2008 Acquisition Cost: USD 1.135 billion Funding of acquisition cost: Debt of USD 1.107 billion and equity for the balance [debt was guaranteed by GMR Infra] Sale value: 50% at USD 1.232 billion Cash Outflow from GMR Group over a 2-year period: USD 1.335 billion [acquisition cost + interest cost on debt + transaction costs] Cash Inflow to GMR: USD 1.265 billion [dividend of USD 32 million and stake sale value of USD 1.232 billion] InterGen brief financials CY09: Revenues: USD 589 million; PAT: USD (183) million; Debt: USD 3.47 billion Source: GMR Infra; ICRA Online

March 2014. Gas supplies could also be restrained in the event of any decline in KG basin gas production. KG basin gas price is open to changes beyond 2014 while any increase in fuel cost would be a pass-through for Vemagiri Power, gas price would be a key factor determining GMR Energys competitiveness. Domestic coal based plants could also suffer from inadequate supplies from Coal India although GMR Kamalanga is insulated to an extent on account of a captive coal linkage, which we expect to be operational by FY16. Figure 5: Fuel Arrangements for operational and planned projects GMR Energy Vemagiri

Power GMR

Kamalanga EMCO Energy GMR

Rajahmundry GMR

Chhattisgarh Fuel Type KG Basin gas KG Basin gas Domestic coal Domestic coal KG Basin gas Domestic coal Fuel Arrangements

FSA with Reliance/Niko for 28286 MMBtu [sufficient for ~70% PLF]

FSA with Reliance/Niko for 57211 MMBtu [sufficient for ~90% PLF]

Linkage with Coal India for 4.52 MTPA; captive coal block of 112 MT

Linkage with Coal India for 570 of 600 MW

Gas to be allocated

Yet to tie up coal linkage

Levelised COG assuming 100% domestic coal supply and gas supply at 90% PLF levels

Rs. 3.94/Unit Rs. 2.89/Unit Rs. 2.07/Unit Rs. 2.84/Unit Rs. 2.96/Unit Rs. 2.23/Unit

Levelised COG assuming 30% Imported coal supply and gas supply at 70% PLF levels

Rs. 4.27/Unit Rs. 2.89/Unit Rs. 2.42/Unit Rs. 3.20/Unit Rs. 3.18/Unit Rs. 2.77/Unit

Source: GMR Infra; ICRA Online Estimates Along with fuel supply issues, sustainability of merchant power prices is a question mark particularly given the deteriorating finances of State owned distribution utilities. InterGen exit better late than never: InterGen had been a drag on GMR Infra as its adverse impact on the consolidated leveraging levels of

the Group and the negative ROI over the 2-year investment period demonstrate. We believe that returns from InterGen even over the longer term would be inferior relative to return on investments in the Indian energy segment given the more mature markets served by InterGen. On an absolute level also, returns are unlikely to have been commensurate to the debt servicing requirements of the acquisition-related debt. As such, an exit from InterGen, although at book loss, is still the best-case scenario for GMR Infra. An immediate positive of the exit would be in terms of a cash inflow of approx USD 225 million to GMR Group. Squaring off of the acquisition debt would also free up future Group cash flows. These apart, the divestment would focus managements attention on the Groups large investment plans in the Indian

energy segment. Exit to PE Investors - Impending value unlocking: GMR plans to list its energy vertical over the next 12-18 months. The recent PE investment (through Convertible Preference Shares) of USD 300 million by Temasek/IDFC provides for an exit to these


10

investors through an IPO (within 36 months) prior to which these convertibles would be converted into equity. A more immediate trigger for the IPO would be the additional investments required by GMR Energy for investment into the planned power portfolio of 8448 MW. Assuming an IRR of 15% for Temasek/IDFC and a pre-money valuation of Rs. 7430 crore for GMR Energy at the time of its IPO in FY13 [ICRA Online Current Estimated Value for the Energy segment increased by 15% till FY13], we expect the conversion to result in an equity dilution of ~20% in FY13. While PE funds and funds available at the Group level would suffice for investment requirements in GMR Energys proposed power plants till FY12, funding issues would arise in FY13, at which time we expect GMR Energy to time its IPO to raise approx Rs. 2500 crore. The actual upside to our valuation would depend on market conditions at the time of the issue.


11

We estimate the energy segment value at Rs. 11.39/Share a dilution of 20% has been assumed to account for the PE investment. Figure 7: SOTP Value Energy Segment Rs. Crore Asset Value GMRs Stake Value of GMRs

Stake Rs./Share % of Total SOTP

GMR Energy 244.8 78% 191.9 0.49 1% GMR Power 375.2 41% 153.1 0.39 1% Vemagiri Power 874.0 78% 685.2 1.76 4% Total Operational Projects

1494.0 1030.2 2.65 6%

GMR Kamalanga 1705.1 64% 1091.3 2.80 6% EMCO Energy 589.0 78% 461.7 1.19 3% GMR Rajahmundry

998.0 78% 782.4 2.01 5%

GMR Chhattisgarh

1063.8 78% 834.0 2.14 5%

Total Planned projects

4355.9 3169.5 8.14 19%

Coal Mines - Indonesia

184.5 80% 147.6 0.38 1%

Homeland Energy

195.1 45% 87.1 0.22 1%

Total Energy 6229.5 4434.5 11.39 26% Source: ICRA Online Estimates Figure 8: Consolidated Energy Vertical Key Indicators Rs. Crore FY10E FY11E FY12E FY13E FY14E FY15E Operational Capacity [MW]

823 823 1591 3241 3591 4961

Revenues 1929.2 2030.7 2605.6 6212.2 8340.1 9802.9 GMR Energy[Standalone] 292.1 411.8 599.1 489.2 489.2 499.0 GMR Power 870.6 854.8 1011.6 1105.7 1209.0 0.0 Vemagiri Power 766.5 764.1 761.8 762.6 763.3 825.1 GMR Kamalanga 0.0 0.0 0.0 1261.0 2341.1 2671.0 EMCO Energy 0.0 0.0 0.0 839.2 1411.5 1334.4 GMR Rajahmundry 0.0 0.0 233.1 1754.6 1769.6 1789.9 GMR Chhattisgarh 0.0 0.0 0.0 0.0 356.3 2683.6 EBITDA 337.5 414.8 636.0 2358.8 3553.7 5068.7 Interest (158.2) (196.7) (228.8) (904.2) (1308.0) (1905.8) Depreciation (78.3) (99.7) (111.8) (531.1) (765.4) (1149.3) PBT 260.3 357.9 419.2 1058.5 1634.0 2124.6 Tax (27.6) (49.5) (77.6) (409.4) (640.9) (882.2) PAT 307.0 282.9 304.9 614.0 961.4 1213.5 EBITDA/Revenues 17% 20% 24% 38% 43% 52% PAT/Revenues 16% 14% 12% 10% 12% 12% Cash Flows FY10E FY11E FY12E FY13E FY14E FY15E EBITDA 337.5 414.8 636.0 2358.8 3553.7 5068.7 Less Taxes and Interest (185.8) (246.2) (306.4) (1313.6) (1949.0) (2787.9) Less/Add Working Capital Changes (42.7) 160.4 (81.0) (701.1) (150.9) (688.0) Less Capex (3066.5) (6464.2) (7092.6) (3995.9) (1939.8) (442.8) Add/Less Borrowings 2147.7 4887.2 6786.9 3082.7 1006.9 (321.3) FCFE (809.8) (1248.1) (57.1) (569.0) 520.9 828.6 Source: GMR Infra; ICRA Online Estimates


12

Airports Segment Ready to Take off GMRs airport business consists of three operational airports: Delhi (DIAL) and Hyderabad (GHIAL) in India and Sabiha Gokcen Airport (ISGIA) at Istanbul, Turkey. In addition to these 3 airports, GMR Infra has also secured a concession in July 2010 for the development and operation of Male Airport (MALE), Maldives (currently undergoing capex). DIAL, GHIAL, ISGIA and MALE are at present directly held by GMR Infra GMR has recently announced the investment of approx Rs. 900 crore in GMR Airports Holding Limited (GAHL, Hold Co formed for the Airports sector) GMR Infras stake in the four airports is proposed to be transferred to GAHL, once regulatory approvals are in place. Delhi Airport - Regulatory issues continue to be hazy: Delhi Airport is the largest airport in India with an expected passenger traffic growth of 16% during FY

11 Phase I of the project was completed in record time although with higher than estimated costs While passenger/cargo traffic has more or less stabilised at higher levels, the chief imponderable is

the position of the AERA on DIALs project cost and fixation of aero tariff Given the high revenue share at 46% of its gross revenues to AAI, the hike in aero charges to remain

a crucial determinant of DIALs profitability Most of the value would emerge from the land bank adjoining the airport; ability of GMR to accelerate

monetisation, while retaining the land valuation to remain key sensitivity Hyderabad Airport: Valuations affected as regulatory clarity emerges: Increase in User Development Fee (UDF) in November 2010 to Rs 430/1700 per departing

passenger to improve profitability Adoption of a single-till approach by AERA for tariff fixation at GHIAL would limit the long-term upside Land bank at the airport would be a key value driver, although monetisation may take considerable

time Istanbul Airport Fast-paced growth; earnings to remain negative in near term: Expected continued high traffic growth (75% in CY 10) to support revenue growth and valuations Commencement of concession fee payments from CY 11 to result in losses in near term Male Airport Latest acquisition:

Strong traffic growth of 20% during 9 months of CY 2010 over previous year Internal accruals from commencement of Airport Development Charge to limit upfront equity

investments Given the revenue share on fuel revenues; ability to improve revenues from aircraft refuelling will be

the key value driver

GMR Airports Segment: Snapshot

Hold Co: GMR Airports Holding Limited. Airports are currently directly held by GMR Infra Operational Airports: DIAL, GHIAL, Istanbul cumulative capacity of 100 Million Pax p.a. against a passenger throughput of 43 million pax p.a. in FY10 Airports under development: Male Airport, Maldives. Ongoing capex of Rs. 2000 crore to be completed by CY14 Real Estate development at DIAL: 250 acres of which 45 acres has been leased out till date Real Estate development at GHIAL: 1500 acres including 250 acres for an MRO SEZ and 250 acres for an Aviation SEZ Contribution to FY10 Revenues: 33% Segmental PBIT FY10: Rs. 240 crore 26% of total


13

Figure 9: Proposed Funding for Phase 1 Rs. Crore Equity + Reserves 1250 Shareholders advances 1250 Debt 5266 Airport Development Fee (ADF)* 1827 Proposed additional ADF# 1654 Deposits from Real estate/concessionaire 1471 Total Financing ~12718 Source: GMR Infra; * NPV of ADF Receipts; # Yet to be approved by AERA

Delhi Airport - Regulatory uncertainty is a key concern Asset Overview and key concession terms: Delhi airport is the largest airport in the country; during FY 2010, passenger traffic grew by 14% (YoY) to 26.12 million accounting for 21% of the total passenger traffic in the country. For the 9 month period ending December 2010, passenger traffic at DIAL was at 21.73 million pax - a growth of 12.5% over previous corresponding period. DIAL is a majority owned subsidiary of GMR Infra, in which GMR Infra holds 53.79% stake. During April 2006, the GMR Infra-led consortium was awarded the concession by AAI to develop and operate the Delhi Airport for a period of 30 years, which is extendable by another 30 years. The project was awarded on the basis of competitive bidding, whereby DIAL agreed to pay 45.99% of its annual revenues to AAI over the concession period. As a part of the concession agreement, DIAL has also been allowed to use around 250 acres of land adjoining the airport for commercial development. DIAL completed phase-I of the airport development in July 2010, which, apart from construction of a new runway, also included two new terminals, one each of 10 million passengers per annum (mppa) (Terminal 1D) and 34 mppa (Terminal 3), which increased the capacity of the airport to 60 mppa. The project was completed within a record time of around 37 months, which is relatively low given the size and scale of the project. Project Cost and Funding: The project cost, which was initially budgeted at Rs. 5,900 crore at the time of signing the concession agreement, was revised to Rs. 8,975 crore due to changes in revision in the scope of the project, which also included construction of terminal 1D. Based on the latest estimates of the completed cost of phase-I, the project cost now stands revised to Rs. 12,700 crore; of which, DIAL has already incurred a cost of Rs. 12,160 crore till October 2010. The total project cost proposed to be funded by the company is as shown in Figure 9. The initial funding plan of DIAL included Rs. 2,739 crore of deposit from real estate development, however due to delays in raising the lease deposits, DIAL was allowed to charge an ADF w.e.f March 2009 from departing passengers (Rs. 200 for domestic and Rs. 1300 for international passenger) to bridge the funding shortfall from lease deposits. While the ADF has been initially allowed for a period of three years, the ADF levy is subject to finalisation of the project cost, which is currently under review by AERA. To fund the increase in the project cost, DIAL has proposed an extension of ADF levy to raise an additional Rs. 1654 crore, which will be subject to the approval of AERA. Key Revenue Streams: The key revenue streams for DIAL include the regulated aeronautical revenues and market driven non-aeronautical revenues. In addition to the above, DIAL will also earn lease rentals from the 250 acre land leasing activities. During FY 10 and 9M FY 11, aero revenues accounted for 36% and 39% of the gross revenues of DIAL respectively.

Aeronautical Revenues: Aero revenues are derived from aeronautical services as defined under State Support Agreement (SSA) signed with Govt. of India (GoI) and Operation, Management and Development Agreement (OMDA) between DIAL and AAI. These key aero revenues include a) Aircraft landing charges, b) Parking and Housing charges, c) X-Ray charges and d) Passenger service fee (PSF).


14

These aero charges are being levied based on the aero charges prevailing at the time of takeover of the airport from AAI by DIAL and were increased by 10% in February 2009. Going forward, with the formation of AERA in June 2009, these charges will be determined by AERA, which will also be guided by the SSA signed between DIAL and GoI. As per the SSA, DIAL is allowed to earn 11.60%12 post-tax return on the regulatory asset base13 (RAB). SSA further defines that the Target Revenues (TR) from aero activities will be the sum of the; a) Regulated return on RAB, b) O&M expenses for aero activities, c) Depreciation on aero assets, d) taxes on aero business. As mentioned in SSA, the TR will be cross subsidised with 30% of the non-aero revenues; a hybrid-till approach. The TR would be computed for each year based on the RAB and projected costs and their NPV will be arrived for a period of five years, discounted @ WACC. The aero charges will hence forward be set based on such escalation rate that DIAL recovers the NPV of the targeted revenues over the five year regulatory period. The above mechanism for determination of the aero charges was proposed to commence from May 2009 (3rd year from the start of the concession period); however due to delays in constitution of AERA, the tariff finalisation process has been delayed. Currently AERA is in the process of finalising the regulatory philosophy and the approach it is going to adopt for the fixation of the aeronautical charges.

Regulatory Issues: The RAB, which is used to determine the targeted revenues of DIAL, depends on the project cost; the approval of the project cost is not only important for the future revenues of DIAL, but will also be an important determinant for the proposed extension of the ADF to fund the cost overrun in the project. The project cost is currently under review of AERA and any disallowances in the project cost will not be included in RAB and hence will result in lowering of DIALs revenues. Since a part of the project cost overrun is also proposed to be funded with extension of ADF; any disallowance will require to be funded by DIAL. In addition, AERA is also expected to finalise the WACC for DIAL and the Return on Equity assumed by AERA while calculating WACC, will also be a key revenue driver for DIAL. Based on our estimates, we expect AERA to come out with the approved project cost during early FY12. This approved project cost along with the tariff principles in SSA will be used for tariff submission by DIAL. Given the substantial investments undertaken by DIAL to complete phase I of the project, we expect the current aero charges to be insufficient to provide a reasonable return to DIAL without a steep hike in current aeronautical charges. In our estimates, we have assumed a WACC of 11.6% for calculation of return on the RAB; based on which DIAL will require DIAL will require a 47% hike in aero charges for each of the next five year regulatory period, which we have assumed to commence from FY 12 to FY 17. The acceptability of such a hike in aero tariffs among various stakeholders remains to be seen and hence the ability of DIAL to achieve such a hike will be key determinant to its profitability.

Non-Aeronautical Revenues: The non-aero revenues of DIAL largely include the unregulated streams of revenues from ground handling, cargo handling, aircraft refuelling, duty free shops, advertisements, food and beverages

12 11.60% is the weighted average cost of capital as defined in the bidding document and can be subject to change 13 Regulatory Asset base = Net fixed assets towards aero activities (excluding the assets funded by ADF and capital work in progress)


15

Figure 10: Land Monetisation under Phase - I Rs. Crore Rs Crore/

Acre Upfront lease deposit [a] 1471 32.70 Upfront infra deposits [b] 673 15.00 Total upfront deposits [c=a+b] 2144 47.70 NPV of lease rentals [d] 1594 39.00 Gross NPV [c+d] 3738 86.70 Source: GMR Infra; ICRA Online Estimates

and rentals from the leased space at airport premises. DIAL has constituted various joint ventures for carrying out these non-aero activities and has awarded concession agreements to reputed operators and it in turn will be receiving a revenue share from these concessions. While the OMDA and SSA defines the aeronautical activities, however AERA in its regulatory approach has classified some of the allied activities at the airport, such as a) ground handling, b) cargo facility, and c) aircraft refuelling as aeronautical activities. Since the revenues from these activities form a major proportion of DIALs revenues (as per our estimates, these charges accounted for 27% of DIALs revenues in FY 10); and are currently out of the AERAs purview; any adverse outcome on the charges currently being levied for these activities will impact the revenues and profitability of DIAL.

DIAL Real Estate - the key value driver: During FY 10, DIAL monetised around 45 acres of the total 250 acres of the land received as a part of the concession agreement. As a part of the monetisation process, DIAL leased the land for its balance concession period for an upfront interest free refundable deposit of Rs. 47.70 crore/acre and the lease rent of Rs. 1.76 crore/acres, which is escalable @ 5.5% p.a. for the lease tenure. Based on the Net Present Value (NPV) of the lease rents receivable, we estimate the NPV of lease rentals over the tenure of the concession to be around Rs. 39.00 crore/acre, which translates into gross land value of Rs. 86.70 crore/acre. Subsequent to Phase I of land monetisation, we expect DIAL to monetise the balance land of 205 acres in phases over the next eight years commencing from FY 12. The companys ability to do so is also a key sensitivity, given the large quantum of land involved. In our projections, we have assumed the land to be monetized by end of FY 19, without any escalation in the land valuations achieved by DIAL. Key financials for Delhi International Airport: Based on our assumptions the key financials of DIAL are expected to be as follows: Figure 11: DIAL Key Projected Financial Indicators Rs. Crore FY10A FY11E FY12E FY13E FY14E FY15E Passenger Traffic 26.21 29.47 32.68 36.25 40.22 44.63

Domestic 17.81 20.19 22.61 25.32 28.36 31.77 International 8.40 9.28 10.07 10.93 11.86 12.86 YoY Growth 15.0% 12.4% 10.9% 10.9% 10.9% 11.0%

Net Revenues to DIAL 614 665 864 1,104 1,434 1,884 Aero Revenues 422 420 619 912 1,343 1,978 Non-Aero Revenues 685 728 849 950 1,076 1,217 Lease Rental Income 46 83 132 183 237 294 Less: Revenue Share to AAI (539) (567) (736) (941) (1,221) (1,605)

Operating expenses (371) (455) (479) (575) (552) (574) Net Profit 38 (364) (399) (301) (122) 333 Cash Flows: FY10A FY11E FY12E FY13E FY14E FY15E EBITDA 244 210 385 529 882 1,310 Less taxes (11) 176 199 150 (41) (51) Less Working capital changes 286 (578) (27) (21) (55) (66) Less Capex (4,430) (1,536) (26) (28) (29) (31) Free Cash flows to DIAL (3,910) (1,728) 530 630 756 1,162


16

Figure 12: Funding of Capital expenditure Rs. Crore Equity 378 Grant from GoAP 107 Interest free loan from GoAP 315 Debt 2120 Total Financing ~2920 Source: GMR Infra; ICRA Online Estimates

Add: Debt raised/(Repaid) 3,434 (515) (1,402) (40) (322) (455) Less: Interest Paid (129) (464) (553) (550) (532) (495) Add: Deposits + ADF 1,874 1,364 2,202 1,193 1,193 1,193 FCFE 1,481 (601) 574 1,233 1,095 1,405 Source: ICRA Online Estimates Hyderabad International Airport - Regulatory clarity, though valuations would be lower, as a result: Asset Overview and the key concession terms: Hyderabad airport is the first greenfield airport developed by any private developer in the country and is the sixth busiest airport in the country. During FY10, the total passenger traffic witnessed a growth of 5% (YoY) and stood at 6.5 million; thereby accounting for 5% of the total passenger traffic in the country. For the 9 month period ending December 2010, the traffic stood at 5.7 million passengers and witnessed a growth of 17% over previous corresponding period. GHIAL is a majority owned subsidiary of GMR Infra, in which GMR Infra holds 63% stake. During December 2004, GMR Infra led consortium was awarded the concession by MoCA to develop and operate the Hyderabad Airport for a period of 30 years, which is extendable by another 30 years. As a part of the concession agreement, GHIAL has agreed to pay 4% of its revenues to AAI over the life of the concession period, with deferment of actual cash outflow for first 10 years of operations. As a part of the concession agreement, GHIAL has also been allowed to use around 1000 acres of land adjoining the airport for commercial development and 500 acres for SEZs. GHIAL is proposed to have a capacity for over 40 mppa and is being developed in phases: phase-I of the project with a passenger capacity of 12 mppa was completed in March 2008. Project Cost and Funding: The completed project cost for phase-I of the development stood at Rs. 2,920 crore and was funded as shown in the figure 12. As a part of the SSA, Govt of Andhra Pradesh provided GHIAL with a non-refundable grant of Rs. 107 crore and an interest free loan of Rs. 315 crore, the repayment for which commences in FY 2024. Key Revenue Streams: The key revenue streams of GHIAL include the regulated aeronautical revenues and market driven non-aeronautical revenues. In addition to above, GHIAL will also earn lease rentals from the land leasing activities. During FY 10 and 9M FY11, the aero revenues accounted for 52% and 55% of the total revenues of GHIAL respectively.

Aeronautical Revenues: The aero revenues are derived from aeronautical services as defined under concession agreement includes a) Aircraft landing and parking charges, b) Passenger service fee (PSF) and c) User development Fee (UDF). To start with, these aero charges were allowed to be levied in line with the AAI rates and were increased by 10% in July 2009. As a part of the concession agreement, GHIAL was also allowed to charge a UDF, the rate for which was proposed to be determined by MoCA (prior to formation of AERA) and thereafter by AERA. The UDF levy was allowed to enable HIAL to earn a required rate of return on the capital investments.


17

The UDF which was initially allowed from August 2008 @ Rs. 375/1000 was increased in November 2010 to Rs. 430/1700 per departing domestic/international passenger respectively. However pending the regulatory clarity on factors such as: a) required return on capital investment (WACC), b) approach for determination of aero charges; c) extent of cross subsidization from non-aero revenues; the UDF is currently being levied on adhoc basis. During its last review on ADF in November 2010; AERA has allowed GHIAL to continue charging ADF for the five year tariff cycle commencing from FY09 and ending in FY13; subject to a review during the final determination of aero charges.

Non-Aeronautical Revenues: The non-aero revenues of GHIAL largely includes the unregulated streams of revenues from ground handling, cargo handling, aircraft refueling, duty free shops, advertisements, food and beverages and rentals from the leased space at airport premises. GHIAL has constituted various joint ventures for carrying out these non-aero activities and has awarded concession agreements to reputed operators and it in turn will be receiving a revenue share from these concessions.

Regulatory Issues: In its recent regulatory philosophy proposed to be followed for fixation of aero charges, AERA has indicated a preference for a single-till approach for GHIAL; as against a hybrid-till approach mentioned under SSA for DIAL, whereby only 30% of the non-aero revenues are proposed to subsidize the aero revenues. With a single-till approach, the entire non-aero revenues of GHIAL will be utilised to subsidize the aero revenues so that the total revenues of GHIAL result in a required WACC. With this approach, the upside available to the shareholders from the unregulated non-aero revenue stream will be capped so that overall return to the equity shareholders will be capped at the Return on equity, which is yet to be determined by the regulator. In our estimates, we have assumed the current UDF regime to continue for the first tariff cycle, i.e. till FY13 and that GHIAL will continue to charge UDF at the current adhoc rates without any further changes. With expected growth in traffic and increase in UDF from November 2010, we expect GHIAL to report profits in coming years. Subsequently from FY14 onwards, we have assumed the aero charges to be determined based on a single-till approach, whereby the total revenues of GHIAL will be determined, which will constitute of the following: a) WACC (assumed at 12%) on the invested capital; b) O&M expenses; c) Depreciation and d) Taxes.

GHIAL Real Estate - Monetisation may take considerable time As a part of the concession for the Hyderabad Airport, GHIAL has around 1000 acres of land which can be used for commercial development which can include hotels, aircraft maintenance facilities, recreational facilities, commercial buildings etc. In addition to this, it also has 500 acres of land, which is proposed to develop aviation SEZ (250 acres) and Multi product SEZ (250 acres). The development on the above projects is currently in nascent stages and has been largely limited to leasing out of land in its aviation SEZ to its Maintenance, Repair and Overhaul (MRO) Joint venture. Given the significant quantum of land and initial stages of planning and development, we have assumed the land leasing for commercial development to commence from FY13 onwards, with back ended land phasing, such that the entire 1000 acres of commercial development is leased by end FY22 and 500 acres for SEZs to be leased out by FY19. To start with we have assumed the land value @ Rs. 2.5 crore/acre with 60% of the value being realised as upfront deposit and the balance as lease rentals over the life of the concession period. With development picking up, we have also assumed an improved land valuation so as to result in a land value of Rs. 8.8 crore/acre in FY22.


18

Key financials for Hyderabad International Airport: Based on our assumptions as highlighted in a later section, which also includes our assumption, whereby the aero charges will be calculated on single-till basis w.e.f. FY 14 onwards; the key financials of GHIAL are expected to be as follows: Figure 13: GHIAL Key Projected Financial Indicators Rs. Crore FY10A FY11E FY12E FY13E FY14E FY15E Passenger Traffic 6.51 7.62 8.13 8.74 9.46 10.29

Domestic 4.80 5.76 6.10 6.53 7.05 7.69 International 1.71 1.86 2.03 2.21 2.41 2.60 YoY Growth 4.8% 17.0% 6.7% 7.5% 8.3% 8.7%

Net Revenues to HIAL 433 555 668 724 644 670 Aero Revenues 220 347 431 462 331 311 Non-Aero Revenues 231 231 265 287 319 348 Lease Rental from Property development - - - 5 21 40 Less: Revenue Share to AAI (18) (23) (28) (30) (27) (28)

Operating expenses (208) (210) (221) (264) (277) (290) Net Profit (123) 9 117 138 50 60 Cash Flows: FY10A FY11E FY12E FY13E FY14E FY15E EBITDA 225 345 447 460 367 380 Less taxes (0) - - (2) (7) (22) Less Working capital changes (115) 22 8 21 41 23 Less Capex 9 (9) (6) (5) (16) (13) Free Cash flows to HIAL 120 358 449 474 386 369 Add: Debt raised/(Repaid) 77 (36) (89) (98) (105) (136) Less: Interest Paid (212) (221) (215) (206) (195) (182) Add: Deposits from Property development - - 60 63 382 369 Others 14 144 - - - - FCFE (1) 245 205 234 468 419 Source: ICRA Online Estimates Sabiha Gokcen Airport - In a high growth phase; commencement of concession fee will impact earnings over the near term: Asset Overview and key concession terms: ISGIA is one of the two existing airports in Istanbul, Turkey, for which the consortium of GMR Infra (40%), Limak Turkey (40%), and Malaysia Airports Holdings Berhad (20%) was awarded the concession agreement in May 2008 to operate and develop the existing airport. The total traffic at ISGIA during the CY10 stood at 11.59 million passengers and witnessed a growth of 75% over previous year. The concession has been awarded by Turkish Ministry of Defence and includes the landside concession, which is limited to the terminal building excluding airside operations such as runway and other airfield operations. As per the agreement, the consortium has to construct a new international terminal, as well as managing two existing terminals at the airport. Post the completion of the new terminal building, the airport is expected to have a total annual capacity of 25 mppa. The total concession period, which started from May 2008, is for a period of 20 years, against a payment of annual concession fee of 1.932 billion. The payment of the concession fee commences from FY11 and escalates for the balance concession period. The concession tenure was extended till February 2030 for payment of additional concession fee of approximately 244 million, payable during extended concession period.


19

Figure 14: Funding of ISGIA million Equity 115 Debt 348 Total Financing ~463 Source: GMR Infra; ICRA Online Estimates

Project Cost and Funding: The completed capital cost of redeveloping the Istanbul airport project is 463 million, which was funded as shown in figure 14. The new terminal was completed in October 2009, prior to its scheduled date of operations as per the concession agreement. Key Revenue Streams: The key revenues of ISGIA will include aero revenues primarily constituting of a) passenger service fee (PSF); b) revenue share from ground handling activities and c) aircraft refuelling; whereas the non-aero revenues will majorly include revenues from a) duty free facilities; b) car parking and other allied activities in terminal such as advertisements, lease rents, food and beverage etc. Within the above revenue sources, PSF is expected to be the largest revenue component which is currently being levied @ 3 per departing domestic passenger and 15 per departing international passenger. Within non-aero revenues, duty free facilities are expected to be the main revenue driver, for which the consortium has awarded a 20 year concession to a third party on minimum guarantee basis. Key financials for Sabiha Gokcen Airport: Based on the actual traffic growth of 70% during 9M of FY 11, we have assumed the overall traffic to grow @ 70% in FY 11; however commencement of concession fee payments from FY 11 is expected to result in the loss at net level in near term. Figure 15: ISGIA Key projected Financial Indicators Rs Crore FY10E FY11E FY12E FY13E FY14E FY15E Passenger Traffic 7.72 13.08 15.29 17.78 20.46 23.10

Domestic 5.31 8.64 9.52 10.44 11.37 12.22 International 2.41 4.44 5.77 7.34 9.09 10.87 YoY Growth 77% 70% 17% 16% 15% 13%

Net Revenues to ISGIA 825 870 1,042 1,402 1,773 2,048 Aero Revenues 640 909 1,108 1,361 1,619 1,883 Non-Aero Revenues 185 318 408 514 628 758 Less: Concession fee - (358) (474) (474) (474) (592)

Operating expenses (795) (715) (845) (992) (1,137) (1,285) Net Profit (28) (167) (130) 66 250 363 Cash Flows: FY10E FY11E FY12E FY13E FY14E FY15E EBITDA 143 155 197 410 636 763 Less taxes 28 - - (17) (63) (91) Less Working capital changes - - - - - - Less Capex (1,656) - - - - - Free Cash flows to ISGIA (1,484) 155 197 393 574 672 Add: Debt raised/(Repaid) 1,029 - - - (10) (73) Less: Interest Paid (127) (195) (200) (200) (196) (182) Less: Others - - (19) (19) (88) (158) FCFE (582) (40) (22) 175 279 259 Source: ICRA Online Estimates


20

Figure 16: Funding of Capital expenditure US $ Mn Equity + Internal Accruals 153 Debt 358 Total Financing ~511 Source: GMR Infra; ICRA Online Estimates

Male Airport Latest Acquisition Project Overview and key concession terms: Male airport is the main international airport in the Maldives with total passenger traffic of 1.8 million during CY09; the passenger traffic during the 9 months of CY10 stood at 1.53 million, thereby witnessing a growth of 20% over previous corresponding period. During July 2010, the consortium in which GMR Infra holds 77% stake was awarded the concession agreement by Govt. of Maldives for the development and operations of the airport for a period of 25 years. The balance 23% stake in the consortium is held by Malaysia Airports Holdings Berhad. The airport was handed over to the consortium w.e.f. November 2010. The scope of the project includes the refurbishment of existing facilities along with development of new passenger terminal, which is proposed to be completed by end of CY14. The concession has been awarded based on the upfront payment of concession fee of USD 78 million, fixed annual concession fee of USD 1.5 million and a revenue share of 1% on the gross non-fuel revenues and 15% of the gross fuel revenues. Subsequent to the completion of the airport development, the revenue share will increase to 10% on the gross non-fuel revenues and 27% of the gross fuel revenues from CY15 onwards. Project Cost and Funding: The capital cost for the project is estimated to be USD 511 Mn (including upfront concession fee of USD 78 Mn); and is being funded in debt: equity of 70:30. During November 2010, the project achieved financial closure, subsequent to which the airport was handed over to the consortium. As per the concession agreement, Male airport will be allowed to levy an Airport Development Charge (ADC) of USD 25 per departing passenger effective from January 2012 for the tenure of the concession period. Given the current passenger traffic of approx 2 million, the airport will generate additional revenues of USD 75 million from ADC during the period CY12 to CY14 apart from other internal accruals; as a result the fresh equity requirement for the project would be low. Key Revenue Streams: The key revenues of Male airport will include aero revenues primarily constituting of a) Aircraft landing and parking charges; b) ground handling; c) passenger service charge (PSC); d) ADC and e) cargo revenues. The non-aero revenues will majorly include revenues from a) aircraft refueling; b) duty free facilities; and other allied activities in terminal such as advertisements, lease rents, food and beverage etc. The current PSC is being levied @ USD 18.05 per departing passenger and most of the other aero charges are expected to be regulated in nature. Given the high revenue share by the airport on fuel revenues, which is 27% of the gross fuel revenues, the ability of GMR to achieve sufficient mark up on its fuel sales, will also be a crucial determinant to its profitability.


21

Key financials for Male International Airport: The ADC is expected to commence from January 2012, which will result in increase in revenues, based on the key assumptions, the key projected numbers are as follows: Figure 17: Male Key projected Financial Indicators Rs. Crore CY11E CY12E CY13E CY14E CY15E Passenger Traffic 2.11 2.17 2.20 2.22 2.55

YoY Growth 3% 1% 1% 15% Net Revenues to Male 952 1,272 1,314 1,361 1,388

Total Revenues 1,078 1,413 1,461 1,515 1,741 Less: Revenue Share (126) (141) (147) (154) (353)

Operating expenses (823) (992) (1,028) (1,071) (1,254) Net Profit 78 204 208 151 (80) Cash Flows: CY11E CY12E CY13E CY14E CY15E EBITDA 129 279 286 290 135 Less taxes (19) (41) (42) (27) - Less Working capital changes (43) (21) (3) (3) 6 Less Capex (333) (609) (659) (217) - Free Cash flows (267) (392) (418) 44 141 Add: Debt raised/(Repaid) - - - - - Less: Interest Paid 277 447 464 155 (6) Free Cash flows to equity (1) (3) (5) (42) (85) Source: ICRA Online Estimates Recent stake sale in Airports to PE Investors: GMR Infras plans to unlock value in the airports vertical have taken shape with the recent PE infusion of ~Rs. 900 crore (USD 200 million) in GAHL by Macquarie SBI Infrastructure Investments Limited. GAHL will use these funds to purchase stake in DIAL/GHIAL/ISGIA/MALE from GMR Infra these funds would thus be transferred to GMR Infra for use within its other businesses. GAHL plans to raise an additional USD 150 million over the near term. The investment has been made in the form of CCPS the exit to these investors will be through a proposed IPO of GAHL prior to which the convertibles held by these investors will be converted into equity. Assuming an IRR of 15% for the investors of GAHL and a pre-money valuation of Rs 13026 crore for GAHL at the time of its IPO, likely in FY14 [ICRA Online Current Estimated Value for GMRs stake in the airport segment increased by 15% till FY14], we expect the conversion to result in an equity dilution of ~ 16 % in FY 14. The actual dilution may however differ and would depend on market conditions at the time of the issue.


22

We estimate the airport segment value at Rs. 18.49/Share largely from DIAL real estate which accounts for 17% of the value. A dilution of 16% has been assumed on account of PE Investment. Figure 18: SOTP Value Airports Segment Rs. Crore Asset Value GMRs Stake Value of GMRs

Stake Rs./Share % of Total SOTP

DIAL 3219.0 45% 1460.1 3.75 9% DIAL Real Estate 6304.7 45% 2859.8 7.35 17% GHIAL [Including Real Estate]

2269.4 53% 1201.0 3.09 7%

Istanbul Airport 3209.2 34% 1078.3 2.77 6% Male Airport 920.2 65% 595.2 1.53 4% Total Airports 15922.5 7194.4 18.49 43% Source: ICRA Online Estimates Figure 19: Consolidated Airport Vertical Key Indicators Rs. Crore FY10E FY11E FY12E FY13E FY14E FY15E Revenues 1,420 2,030 2,980 3,671 4,112 4,740 DIAL 665 665 864 1,104 1,434 1,884 GHIAL 433 555 668 724 643 669 Istanbul 321 348 417 561 709 819 Male - 462 1,032 1,282 1,326 1,368 EBITDA 523 680 1,076 1,434 1,790 2,245 DIAL 294 210 385 529 882 1,310 GHIAL 225 345 447 459 367 378 Istanbul 3 62 79 164 254 305 Male - 62 166 281 287 251 Interest (392) (764) (849) (839) (820) (803) Depreciation (283) (467) (626) (627) (638) (683) PBT (152) (551) (399) (32) 332 759 Tax (0) (167) (174) (100) 111 129 PAT (151) (384) (225) 68 221 630 EBITDA/Revenues 37% 33% 36% 39% 44% 47% PAT/Revenues (11)% (19)% (8)% 2% 5% 13% Cash Flows FY10E FY11E FY12E FY13E FY14E FY15E EBITDA 523 680 1,076 1,434 1,790 2,245 Less Taxes and Interest (391) (597) (675) (739) (931) (932) Less/Add Working Capital Changes

171 (599) (39) (3) (16) (36)

Less Capex (6,077) (1,879) (642) (692) (262) (44) Less/Add Borrowings 4,540 (274) (1,043) 327 (283) (670) Others 1,888 1,508 2,183 1,174 1,104 1,034 FCFE 654 (1,162) 860 1,501 1,401 1,597 Source: ICRA Online Estimates


23

Figure 20: Revenue Contribution Roads. Source: GMR Infra; ICRA Online Estimates

0%

20%

40%

60%

80%

100%FY10FY11FY12FY13FY14FY15FY16

3 annuities - operational3 toll - operational3 under construction roads

Roads Segment: GMR is a significant player in the development of PPP road projects in India. The groups road portfolio consists of 9 projects, of which 8 projects have NHAI as the concessionaire, and 1 project is awarded by the Chennai Municipal Development Authority (CMDA). These 9 projects are made up of 3 annuity-based operational highways (adding up to 254 km), 3 toll-based operational highways (179 km), and 3 under-construction projects (309 km) all of which are expected to be commissioned during Jun 2012 - Dec 2012. Although its presence in the roads segment is not inconsiderable, the segment has a relatively lower presence within the Group when compared with the airports and energy segments.

Three operational annuity based projects GMR Tuni Anakapalli, GMR Tambaram Tindivanam, GMR Pochanpalli: GMR enjoys the distinction of commissioning its three annuity projects (aggregating to 254 km) before the scheduled CoD, with no escalation in the estimated project cost. The group has also unlocked significant value from these three projects by securitising annuity receivables. Interest rate movements and increases in regular operations and maintenance as well as major maintenance expenses will be the important variables for these projects. Three operational toll-based projects GMR Ambala Chandigarh, GMR Jadcherla, GMR Ulundurpet: These three projects were commissioned on or before the scheduled CoD; each of the three projects saw cost overruns. The commissioning of these three projects (between Nov 2008 and Jul 2009) coincided with the slowdown in economy during FY09, resulting in lower than estimated traffic during the first year of operations for all the three roads. In addition, in GMR Ambala Chandigarh, part of the commercial traffic was diverted through competing state highways, thereby significantly affecting the traffic. As a result, the three entities have relied on support from GMR Infra to meet their obligations. However, the three project stretches have witnessed good growth in traffic over the last two years. Three under construction projects GMR Hyderabad Vijayawada, Chennai ORR, GMR Hungund Hospet: During FY10, GMR won its three new highway projects, one each on annuity basis (Chennai ORR 29 km Chennai Outer Ring Road), toll basis ( GMR Hungund Hospet 99 km Hungund Hospet Highway), and revenue-sharing basis (GMR Hyderabad Vijayawada 181 km Hyderabad Vijayawada Expressway). GMR has achieved financial closure for all three projects, and the projects are expected to be commissioned over June-Dec 2012. We do not foresee any funding risks for these projects.

While significant revenue contribution from the three under construction projects is expected to kick-in from FY13 onwards, we expect the road segment to turn profitable at net level only from FY15 onwards owing to the large fixed costs (interest and depreciation).The estimated capital expenditure to be incurred for the three under construction toll roads is Rs. 5,104 crore to be incurred between FY11 and FY13; of this fresh long term borrowing during this period are estimated at Rs. 3,660 crore.

GMR Roads Segment: Snapshot

Hold Co: None. Highways are directly held by GMR Infra Operational Roads: 6 road projects 3 toll roads and 3 annuity roads aggregating to 421 kms Roads under development: Chennai Outer Ring Road [29 Km Annuity]; GMR Hungund Hospet [99 Km Toll]; GMR Hyderabad Vijayawada [ 181 Km Toll Revenue share] Contribution to FY10 Revenues: 8% Segmental PBIT FY10: Rs. 161 crore 18% of total


24

We estimate the highways segment value at Rs. 3.3/Share. Figure 21: SOTP Value Roads Segment Rs. Crore Asset Value GMRs Stake Value of GMRs

Stake [Rs. Crore]

Rs./Share % of Total SOTP

Tuni Anakapalli 15.1 61% 9.2 0.0 0% Tambaram Tindivanam 21.8 61% 13.3 0.0 0% Pochanpalli 62.6 100% 62.6 0.2 0% Total Operational Annuity 99.5 85.1 0.2 0% Ambala Chandigarh 5.0 100% 5.0 0.0 0% Jadcherla 250.3 100% 250.3 0.7 2% Uludurpet 268.9 100% 268.9 0.7 2% Total Operational Toll 524.2 524.2 1.4 3% Hyderabad Vijayawada 468.8 74% 346.9 0.9 2% Hungund Hospet 555.7 51% 283.4 0.8 2% Chennai ORR -37.1 90% -33.4 -0.1 0% Total ongoing projects 987.4 596.9 1.6 4% Total Roads 1611.1 1206.2 3.3 7% Source: ICRA Online Estimates Figure 22: Consolidated Roads Vertical Key Indicators Rs. Crore FY10E FY11E FY12E FY13E FY14E FY15E Revenues 346.1 381.3 399.1 834.6 1128.5 1214.2 EBITDA 278.0 296.0 310.8 624.6 812.5 851.9 Interest (209.8) (222.9) (209.7) (414.0) (564.7) (551.4) Depreciation (143.6) (161.4) (166.7) (253.1) (299.9) (312.2) PBT (34.6) (63.4) (41.9) (16.8) (24.3) 18.0 Tax (10.5) (4.3) (5.0) (6.0) (7.0) (8.9) PAT (45.1) (67.7) (47.0) (22.8) (31.4) 9.0 EBITDA/Revenues 80% 78% 78% 75% 72% 70% PAT/Revenues -13% -18% -12% -3% -3% 1% Cash Flows FY10E FY11E FY12E FY13E FY14E FY15E EBITDA 278 296 310.8 624.6 812.5 851.9 Less Taxes and Interest (220.3) (227.2) (214.7) (420) (571.7) (560.3) Less/Add Working Capital Changes (14.80) - - - - Less Capex (1,651.0) (1,787.5) (1,575.8) - - Less/Add Borrowings 897.1 1,147.3 1,172.8 (127.5) (147.3) FCFE (700.0) (544.1) (198.4) 113.3 144.3 Source: ICRA Online Estimates


25

Figure 23: Revenues, PAT and EPS Estimates. Source: GMR Infra, ICRA Online Estimates

1697 22954019 4567

5679

7977

1344315491

18550

242 262 277 225

-283 -41

613 982 1764

-1

0

1

2

3

4

5

-5000

0

5000

10000

15000

20000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Revenues (Rs. Crore)

PAT (Rs. Crore)

EPS (Rs./Share)

Figure 24: Estimated debt levels. Source: GMR Infra, ICRA Online Estimates

0 10000 20000 30000 40000

0.00.51.01.52.02.53.0

FY10 FY11 FY12 FY13 FY14 FY15

Debt

Debt/Equity

Financial Outlook: Substantial revenue build-up; earnings expected to be subdued over the next 2-3 years: Robust growth in revenues is expected over FY10-13 with the recent commissioning of major capacity in the airports segment and the progressive increase in capacity through ongoing capex in the energy segment. Through FY11-13, the energy segment will continue to remain the largest revenue segment (46% in FY13E) with the airports vertical following closely at 35% (FY13E). We expect the roads segment to remain marginal at 6-7% while some EPC revenues are also likely given GMR Infras plans to scale up activity within this vertical. We expect earnings to be negative in FY11 and FY12 as the full impact of interest and depreciation charges is reflected in the financial statements with the commissioning of T3 in DIAL while a step-up is expected in FY13 when the first of the ongoing power projects is commissioned (net profits in the airports segment are likely from FY13 onwards). Post FY13, there is expected to be a surge in earnings as the ongoing capex in the energy segment is progressively operationalised and the airports are gradually weaned away. Capital structure likely to improve from FY13: GMR Infra has just completed a major round of capex in the airports segment and is in the early stages of

another major round of capex in the energy segment debt funding for these projects is typically to the extent of 75-80% of the capital cost. Earnings have so far been limited relative to the scale of capex incurred on account of the low operational asset base. Despite the recent funds infusion through QIP/PE and the efforts towards de-leveraging the balance sheet, we expect Debt/Equity to remain high and peak in FY12. A gradual moderation is likely after FY13 with earnings improvement and an improved capital structure post the IPO in GMR Energy. Each of the airports, roads and energy segments are expected to generate sufficient cash to service debt (airports would benefit from cash

from real estate development), while the consolidated available cash balances would adequately support debt servicing at the Hold Co level. Funds in place for immediate capex plans; further fund-raising targeted through listing of business verticals: GMR Infra has recently completed a major round of fund raising (approx Rs. 3700 crore through QIP/PE) although approx Rs. 1560 crore was utilised towards deleveraging, we estimate that the Group has sufficient cash balances in place to meet funding requirements for the next two years (for ongoing projects). The energy vertical is expected to list around FY13 we estimate that the energy vertical would raise a minimum of Rs. 2500 crore through its IPO. These funds would largely be used for equity


26

investments in forthcoming projects including the already announced plans in the energy segment (the Groups total plans in the energy segment are for 8448 MW of which 4138 MW is ongoing). We also expect GMR to similarly unlock value from the airports and the highways segment in future. As such, we do not expect further equity dilution at GMR Infra level except in the event of a further increase in the capex plans of the Group and/or a deferment of the IPO in GMR Energy beyond FY13.


27

Figure 25: GMR Infra Consolidated Key Projected Indicators Rs. Crore FY10A FY11E FY12E FY13E FY14E FY15E Revenues 4566.5 5762.9 8109.3 13631.1 15748.3 18881.8 Energy 2054.9 2030.7 2605.6 6212.2 8340.1 9802.9 Airports 1506.9 2740.6 3931.3 4786.2 5441.4 6481.2 Roads 365.3 381.3 399.1 835.1 1129.4 1217.1 EPC/Others 639.3 610.4 1173.4 1797.6 837.4 1380.6 EBITDA 1364.3 1440.8 2173.3 4678.7 6181.3 8260.3 Energy 543.0 414.8 636.0 2358.8 3553.7 5068.7 Airports 416.1 679.6 1076.4 1433.6 1789.7 2244.7 Roads 278.3 296.5 311.7 627.4 818.2 861.3 EPC/Others 126.9 49.9 150.1 260.9 22.9 89.9 Interest (850.3) (1407.6) (1550.0) (2489.2) (2980.0) (3492.3) Depreciation (612.2) (729.0) (905.6) (1412.1) (1702.7) (2144.2) PBT 193.1 (431.4) (134.7) 938.0 1680.0 2764.5 Tax 32.2 148.8 94.0 (325.2) (698.1) (1000.1) PAT before MI 225.3 (282.6) (40.7) 612.9 981.9 1764.5 EBITDA/Revenues 30% 25.0% 26.8% 34.3% 39.3% 43.7% PAT/Revenues 4.9% (4.9)% (0.5)% 4.5% 6.2% 9.3% EPS before MI 0.6 (0.7) (0.1) 1.6 2.5 4.5 Minority Interest 66.9 (130.0) (86.3) 321.3 591.8 927.2 PAT after MI 158.4 (152.6) 45.6 291.6 390.1 837.3 EPS after MI 0.4 (0.4) 0.1 0.7 1.0 2.2 Cash Flows FY10A FY11E FY12E FY13E FY14E FY15E EBITDA 1364.1 1440.8 2173.3 4678.7 6181.3 8260.3 Less Taxes and Interest (787.4) (1409.3) (1617.8) (2929.1) (3646.4) (4463.4) Less/Add Working Capital Changes 721.1 (33.2) (418.3) (827.8) (123.7) (797.6) Less Capex (7,100.6) (8514.4) (9242.5) (6257.1) (2,557.1) (685.6) Add/Less Borrowings 9,442.6 2394.3 6,525.8 4233.6 278.6 (1549.6) FCFE 3,640.0 (6121.7) (2579.5) (1101.7) 132.7 764.0 Source: GMR Infra; ICRA Online Estimates Figure 26: GMR Infra Consolidated Balance Sheet Rs. Crore FY10A FY11E FY12E FY13E FY14E FY15E Share Capital 366.7 389.2 389.2 389.2 389.2 389.2 Reserves and Surplus 6300.3 8255.3 9426.9 11249.5 12753.0 13663.8 Preference Shares 0.0 2243.0 2243.0 893.0 0.0 0.0 Minority Interest 1790.2 1582.0 1785.9 4767.5 5467.9 5694.7 Loan funds 21371.3 23765.6 30291.4 34525.0 34803.6 33254.0 Other Liabilities -80.5 2710.2 3993.5 5482.8 7402.4 9449.6 Total Liabilities 29748.0 38945.4 48129.9 57307.1 60816.1 62451.4 Gross Block 25272.5 33958.3 43169.8 49396.0 51929.9 51853.9 Less Acc Depreciation -2341.6 (3220.2) (4068.4) (5423.1) (7080.3) (8447.3) Net Block 22930.9 30738.1 39101.4 43972.9 44849.6 43406.7 Investments 4640.1 5454.1 4590.5 4637.6 4843.4 4785.7 Current Assets 4142.3 3698.1 5323.2 9663.0 12015.7 15287.6 Less Current Liabilities -1965.3 -956.1 -880.9 -964.4 -868.9 -1004.4 Net Current Assets 2177.0 2742.0 4442.3 8698.6 11146.8 14283.3 Total Assets 29748.0 38945.4 48129.9 57307.1 60816.1 62451.4 Source: GMR Infra; ICRA Online Estimates


28

Detailed Profile of Assets: Energy Segment: Figure 27: Details of operational power projects GMR Energy GMR Power Vemagiri Power Capacity 235 MW 200 MW 388 MW Location Kakinada, AP Chennai, TN Vemagiri, AP Fuel Type Earlier Naphtha. Recently

converted into Gas LSHS Gas

CoD 2001. Gas based operations commenced in end-July 2010

1999 2006 - the plant only commenced operations on a continuous basis from April 2009 [after KG Basin Gas was made available]

Fuel Supply Arrangements RIL/Niko - KG basin gas - FSA expires in 2014

HPCL - Naphtha RIL/Niko - KG basin gas - FSA expires in 2014

Offtake Arrangements 100% Merchant 100% Regulated. 15-Year PPA expiring in 2014

100% Regulated. 23-Year PPA expiring in 2029

FY10 Financial Indicators Revenues [Rs. Crore] 236.4 870.6 766.5 EBITDA [Rs. Crore] (20.0) 131.8 221.8 PAT [Rs. Crore] 113.8 127.7 169.1 NCA [Rs. Crore] 17.7 97.0 216.5 Total Debt [Rs. Crore] 2469.1 81.5 1045.3 Net Worth [Rs. Crore] 1571.2 535.3 146.4 EBITDA/Total Revenues (7.8)% 15.1% 28.9% PAT/Revenues 5.4% 14.7% 22.1% Total Debt/Net Worth 1.6 0.2 7.1 Source: GMR Infra Figure 28: Details on Ongoing Power projects: GMR Kamalanga EMCO Energy GMR Rajahmundry GMR Chhattisgarh GMRs Share 80% 100% 100% 100% Capacity 1400 MW to be

implemented in 2 phases 1050 MW and 350 MW

600 MW 768 MW 1370 MW

Location Orissa Maharashtra Andhra Pradesh Chhattisgarh Technology Sub-critical Sub-critical Sub-critical Super-critical Fuel Type Domestic Coal Domestic Coal KG Basin gas Domestic Coal Capital Cost Rs. 6040 crore [Rs.

4.3 Crore/MW] Rs. 3480 Crore [Rs. 5.8 Crore/MW]

Rs. 3300 Crore [ Rs. 4.3 Crore/MW]

Rs. 8812 Crore [Rs. 6.4 Crore/MW]

Expected funding Debt of Rs. 4530 crore and equity of Rs. 1510 crore. Debt/Equity of 75/25. Financial closure achieved for Phase 1: Rs. 3405 crore

Debt of Rs. 2610 crore and equity of Rs. 870 crore. Debt/Equity of 75/25. Financial closure achieved

Debt of Rs. 2475 crore and equity of Rs. 825 crore. Debt/Equity of 75/25. Financial closure achieved

Debt of Rs. 6609 crore and equity of Rs. 2203 crore. Debt/Equity of 75/25. Financial closure achieved subject to fuel linkage and environmental clearance

Fuel Arrangements Linkages in place for Phase 1

Linkages in place for 570 of 600 MW

Allocation from KG basin awaited

Yet to tie up coal linkage

Power Offtake Arrangements

Phase 1: 263 MW to GRIDCO, Orissa; 300 MW to Haryana Govt at a levellised tariff of Rs. 2.41/Unit [fixed tariff with nil escalation]. Phase

200 MW 25-year PPA with MSEDCL at a levellised tariff of Rs. 2.64/Unit [with fixed and escalable components]. Balance yet to be

No firm Offtake arrangements in place. 15% is expected to be sold on merchant basis

No firm Offtake arrangements in place. 15% is expected to be sold on merchant basis.


29

GMR Kamalanga EMCO Energy GMR Rajahmundry GMR Chhattisgarh 2: no offtake arrangements in place

tied up of which 15% is expected to be sold on merchant basis

Expected CoD Phase 1: FY13; Phase 2: FY14

FY13 FY12 FY15

Current Status Under implementation. Approx 30% financial progress

Under implementation. Approx 15% financial progress

Under implementation. Approx 30% financial progress

Preliminary stages. Environmental clearance and coal linkage are pending

Source: GMR Infra Figure 29: Detailed Assumptions Energy Segment FY11E FY12E FY13E

gmr infrastructure-equity research report 2011 by icra

Documents